The paper tiger economy
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* South Korea The economic crisis in South Korea calls into question the whole economic strategy pursued by the so-called Asian tigers. Terry Lawless The average income has been halved in a matter of months: from $US10,000 in August to $5,000 in late December. The stock market has collapsed. In 1996, the total market value of the listed stocks came to 117 trillion won ($139 million), at an exchange rate of 844 won/dollar. On Christmas Eve 1997, it stood at 66 trillion won ($34 bn.), at an exchange rate of 1.965 won/$. That meant that the total price of all listed companies was now less than that of the Dutch bank group ING, the world's seventieth largest corporation.
Korea has been bailed before: in 1969 (by the IMF) and in 1983 (by Japan). This indicates a fundamentally structural problem related to the economic strategies of the chaebols (conglomerates) which expose them badly to such things as the steep drop in the price of a given commodity and the more general tendency of the rate of profit to fall. The breaking up of the chaebols is essential for what KCTU trade union leader Kwon Young-gil calls the "democratisation" of the economy
The first warning signs in the current crisis were the steep fall in the price of semi-conductors and the simultaneous global overproduction of steel. Both these developments seriously damaged the 1996 profit margins of the biggest chaebols.
Their strategy, which consisted of borrowing huge sums, as short term loans, to finance dramatic expansions in productivity, only worked during the years of very high regional growth.
Each of the failed chaebols has gone under with incredibly large amounts of debt. The most mediatised collapse, that of Hanbo, offers a textbook illustration of political corruption and economic miscalculation. But all of the chaebols practice the same kind of hair-raising risk-taking When it crashed in November, Halla chaebol had debts amounting to 20 times
The long economic boom of the East Asian region appears to have entered a new period, with an undertone of stagnation. Profit levels have fallen below 5% for the first time in twenty-five years. The recent crisis, should be analysed in much the same way that the Marxist economist Ernest Mandel analysed the long post-war boom in the G-7 countries. The region is in crisis because of what Marx called the tendency of the rate of profit to fall with the generalisation across the region of a given level of technological infrastructure. South Korea recently celebrated the sale of its ten millionth automobile.
The breaking up of the chaebols will probably now occur under the auspices of foreign capital and without democratisation. The lack of democratic control will of course facilitate foreign take-over under the worst possible terms for Korean workers. The first major "anti-crisis" step taken by the Korean government was the ending of the Trade Diversification which prevented a whole range of Japanese goods, including cars and electronic goods, from entering the Korean
Because former President Park Chunghee slavishly imitated Japan's industrial orientation, a whole range of South Korean industries may now be absorbed by their larger, Japanese counterparts. The ceiling on foreign ownership of domestic firms was raised to 55% on 30 December 1997, and will be eliminated entirely at the
For the relatively weak Korean bourgeoisie, an unequal partnership with selected G-7 countries appears to be the only solution. In the medium term, the economic power of Japan, Europe and the U.S. in Korea seems set to increase, although perhaps we will first see a period of global recession or depression.
Of course, Japanese ownership of Korean industry would recreate a potentially explosive dynamic, with the re-
Belt-tightening, South-East Asian style emergence of intertwined class and national grievances. The Japanese bourgeoisie would have to proceed cautiously. with nominal control remaining with Korean bosses. This would not be a new experience for the family-dominated chaebols. This was essentially the role played by their landowning grandparents at the turn of the century, when Korea was a Japanese colony.
Kim Dae-jung has emphasised the importance of small businesses, and has already announced a package of funds to be injected into the economy in order to increase liquidity. But his ability to move against the twenty families who together
INTERNATIONAL INSTITUTE FOR RESEARCH AND EDUCATION
World Bank/IMF/WTO: The Free Market Fiasco
Eric Toussaint and Peter Drucker (Eds.)
4
International Viewpoint #297 comprise about 60% of the economy seems extremely limited
For their part, the chaebols are considering the possibility of achieving specialisation in particular industries through the selling off of their various
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extra interests — to other interested chaebols! This is an indication of their Korean patriotism and their inability to see beyond their limited extended family horizons. This plan seems doomed to fail, if it even gets the chance to be tested. The economic mess is too great.
The government is also trying to re-integrate the illigitmate wealth ammassed through bribes and extortion into the mainstream economy. There is reported to be $50 bn. underground, the accumulated loot from years of bribes, forced gifts and
The money went underground Young-sam measures to bring Korea into line with OECD financial transparency regulations.
All candidates promised to abandon the Real Name Transaction System, which has driven much of this money underground. Since his election, Kim Dae-jung has changed his mind, and now proposes International Viewpoint to introduce a long term government bond. with no questions asked on the source of the funds. The bond would be paid out after the expiry of the statute of limitations on financial crimes. Will the unions fight back?
What of the possible fightback by the unions? The battle, if it comes, will be in the heavy industries, a repeat of the General Strike of December 1996-January 1997. This sector is primarily organised by the Korean Confederation of Trade Unions (KCTU), the militant split from the statesanctioned Federation of Korean Trade Unions (FKTU) in 1995.
This time, it will be the IMF that will be pressing the unions, not the Korean bourgeoisie. Obviously, the outcome of the struggle will affect the decision of foreign capital to invest in Korea, especially that interested in taking over companies or chaebols. It will be a defensive battle, reminiscent of the kinds of strikes we have witnessed in the past few years in the G-7 countries.
The prospects for victory are not great, seeing that victory could reintroduce capital flight. This would cause the further destabilisation of the won with more inflation, rising import costs and ruptcies in a vicious cycle of failure. The fight must be waged for both a minimising of job losses, compensation for those who do lose their jobs in the case of actual bankruptcies and the creation of a state unemployment scheme for jobless workers. In the Korean case, the opening of company books would probably be a traumatising experience, providing material for multiple economics dissertations on the creative practices of chaebol accounting.
In order to carry out the financial reform promised to the IMF, the Kim Daejung government will have to rewrite the Labour Code in the first part of 1998. The Korean Confederation of Trade Unions has promised an all-out general strike
The state-sanctioned union organisation, the Federation of Korean Trade Unions, is taking a more IMF-friendly approach. Its leader, Park In-sang, suggested in a recent meeting with Kim Dae-jung that he will send letters to the IMP and other Western donor organisations pledging his organisation's willingness to observe the terms of the bailout agreement. After the meeting he said, "Union members will start campaigns for employment sharing and holding wage down wage rises. Union members believe that layoffs must be the last option".
Two issues look like being central to any mass mobilisation. The first is the Labour Code provision regarding redundancies in the case of mergers and acquisitions. As a result of last year's general strike, no mass lay off can occur before the year 2000. The government must overturn this provision if the Korean economy is to become respectable again in the eyes
The second issue is the legal stipulation that workers must be compensated before other creditors are paid off in the case of bankruptcy. This is a crucial demand for workers, since Korea has no unemployment insurance scheme for those affected by lay-offs. *
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